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Got it in one. Apparently, the Liberal Democrats intend to do just that. They issued a press release, which presumably means that at least for one day their policy will remain the same. At best, it is
absurd posturing by a minority party. At worst, it is a cynical denial of help to the most vulnerable in our society.
Mr. Heath: I am most grateful to the hon. Gentleman. Does he recognise the fact that the last time we voted against an uprating-when we had the scandalous 75p increase-it resulted in the underpinning that the Minister has been boasting about this evening? Sometimes, when we make these points we can do a great deal of good for pensioners-his abstention will not do that.
Mr. Waterson: So, we are clear-the hon. Gentleman is making a point. The Liberal Democrats, knowing that they are never going to win these votes, are simply trying to make a point. I am sure that the hon. Gentleman has caught up with the fact that his party has, in recent weeks, abandoned its policies to introduce a universal citizens pension, free care for the elderly and free tuition fees. I wonder how much longer the queue of policies being replaced with mere aspirations will become.
Steve Webb (Northavon) (LD): It is good to have the opportunity to debate these important matters, albeit just for 90 minutes. It sometimes amazes me that we spend a couple of billion here or there, but that the form is that such things go through on the nod without anyone even considering voting against them. It is absurd that Parliament simply has to take or leave the whole order on occasions such as this. The part of the regulations to which we object most strongly is the freezing of the state earnings-related pension scheme and state second pensions, but current parliamentary procedures do not allow us to select the bits that we do not like and try to change them, so we are faced with the unenviable choice of either taking or opposing the whole lot.
As my hon. Friend the Member for Somerton and Frome (Mr. Heath) has pointed out, the last time we chose to register our disquiet on behalf of Britain's pensioners by voting against the entire order was when the Government had increased the pension by just 75p. It is, perhaps, no surprise that the pension went up by £5 the following year, and that, as my hon. Friend also said, legislation went through shortly thereafter to ensure that a rise of 75p would never happen again. So, although we were mocked by those who knew perfectly well what we were doing at that time, history will show that we did the right thing then, and that we are doing the right thing now by voting as I encourage my hon. Friends to vote tonight. More than 50 of them have already signed early-day motion 957, which sets out our reasons for doing so.
Why do we propose to vote in that way? First, if we look at the additional state pension, SERPS and the state second pension, we see that this is not about a minority interest, although it might be a technical issue and something that people do not understand terribly well. Ministerial answers that I have received indicate that 6.5 million pensioners receive just SERPS pensions, 1.8 million receive both SERPS and state second pensions,
and another 150,000 receive only the state second pension, so well over 8 million pensioners will not receive a 2.5 per cent. increase.
The Minister gave an average figure of 2 per cent., which I am sure is right, but the increase will vary a lot between pensioners who have very little SERPS pension, for whom this will not make a lot of difference, and those who have never contracted out, have never had a company or private sector pension and have been in SERPS all their lives. They will tend to have been lower-paid workers who did not have the opportunity of joining a good company scheme, and a big proportion of their total pension income will come from SERPS. They will therefore get less than the 2 per cent. figure that the Minister has quoted.
Mr. Alan Reid (Argyll and Bute) (LD): My hon. Friend is perfectly right. Let me give an example. This morning I received a letter from a pensioner in my constituency who will get an increase of £2.40 in her state pension, but who would have got an increase of more than £5 if the additional elements had gone up in line with inflation. That shows the significant impact that this Government proposal will have on real people.
Steve Webb: Absolutely. My hon. Friend highlights one of the strongest examples of this issue-the case of someone whose SERPS or state second pension is, by the sound of it, pretty much equivalent to their basic state pension. The Government might say, "Well, it's only a pound or so a week, on average," but that becomes half a billion pounds that would have been given to pensioners if the other elements had been increased by 2.5 per cent., as the basic pension was. On hearing the 2.5 per cent. figure, many people will have thought that that is how much their pension would go up by.
Like many hon. Members I do a lot of work on behalf of pensioners, and I often ask them to tell me what their basic pension is, because of particular schemes by which people can improve their basic pension, and almost without fail the figure that they give me is not their basic pension but their total pension. People simply do not make that mental distinction. The Minister-I hope that she will correct me if I am wrong-read something out from the pre-Budget report, which the public do not read, but she did not quote from the pre-Budget statement to the House, which was at least on the telly. If she can tell me that the Chancellor of the Exchequer made it quite clear in his statement that the additional parts of the pension would not rise in line with 2.5 per cent., I will happily give way to her-but she cannot. I think that we can only conclude that the Chancellor did not want the great British public to understand what he was doing-scooping half a billion pounds by not indexing the additional pension elements.
The Minister gave a slightly geeky answer on this point-I do not use that word as a term of abuse-when she said that there would be implications for people who are contracted out. She will know, however, that for part of the state pension, the graduated retirement benefit-she nods knowingly-which many older pensioners, especially women, often receive, there is no contracting out issue. When she responds to the debate, as I hope she will, rather than letting it peter out, will she explain why that element was not indexed? It would
not cost a significant amount and there would be no "unintended consequences," as she described them. I asked her that question in response to the statement before Christmas. She did not deal with it then; I hope she will do so now.
There are strong arguments that people are being misled and that we should have had consistent indexation between the basic pension and additional pensions- [ Interruption. ] I am delighted to say that my hon. Friend the Member for Twickenham (Dr. Cable) signed our early-day motion in support of the position I am advancing.
One of the key things the voting public will want to know is where we go from here on pension uprating. We heard a staggeringly evasive contribution-even by Tory standards-from the hon. Member for Eastbourne (Mr. Waterson), who protested that the Government had been uncertain about when they would restore the earnings link, yet when he was challenged directly to say when the Conservatives would do so, answer came there none. All we know is that the Conservatives have said they will find the money for the earnings link by increasing the male state pension age to 66. They said that they would do that in 2016, which on my reckoning is beyond the end of the next Parliament, so where will they find the money? If they propose to restore the link earlier, when will they do it? Pensioners are simply being told that that will happen at some point in the next Parliament.
The hon. Gentleman rightly derided the failure of the Labour Government to restore the earnings link for the past 13 years. His party failed to do so for 17 years, so we are up to 30 already. Does he seriously think that pensioners should be made to wait for up to another five years, on a "Vote for us: we won't tell you when we'll do it, but we might get round to it some time in the next five years" ticket?
Let us consider someone who has just reached pension age, say a woman at 60, or a man at 65, or-this has just occurred to me; this is live-a man who turned 65 in 1980, when Mrs. Thatcher-now Baroness Thatcher-broke the earnings link. Such a man will be 100 by the end of the next Parliament. Only then could he be confident that a new Conservative Government would have restored the earnings link. Should somebody who retired the year Mrs. Thatcher broke the earnings link have to wait until they are 100 to see it restored? Even in the world of pensions, that might be regarded as glacial progress.
My hon. Friend the Member for Twickenham has had his thumbscrews out. He has tested our sums and has concurred that the Liberal Democrat commitment for the pension should be to restore the earnings link not at some vague time in the next Parliament but with immediate effect-a link to the higher of prices or earnings, or the 2.5 per cent. underpinning. We have identified, as our costed manifesto always does, a list of
things that we would not do, but this is the pension priority that we will introduce. That is why we were so disappointed when the regulations failed to meet that priority.
The point about pensions has been well made. To be fair, the hon. Member for Eastbourne was right to say that the headline rate of inflation really does not do it for pensioners. The retail prices index, in particular, is massively deflated by falling interest rates. Those are great news for people who have a mortgage and are borrowing money, but for pensioners falling interest rates are not merely not good news, but actually depress their incomes through falling savings rates. It is the infamous double whammy. The headline RPI is negative, which does not benefit pensioners, but their incomes are falling because of low interest rates-a double hit. Pensioners will not perceive themselves as having experienced no inflation.
We know that inflation is 3.5 per cent. or more, so to give pensioners an average of 2 per cent. in April, as the uprating does, will be a real cut. It is saying to pensioners, "You're first against the wall. You're first to take the pain of the recession." That is what the order does, which is why we shall oppose it tonight.
There are two issues relating to the order to which I want to draw the House's attention. The first is pensions. The second is the temporary child benefit and disability benefit increase. The Minister said that the Government were bringing forward a rise that would have happened next year. She asked in what sense there would be a real cut, and I will tell her. This year those benefits will increase by 1.5 per cent., when inflation is notionally nil or negative. Next year they will go up by whatever inflation is, less 1.5 per cent. Any graph of the real value of benefits would show an increase the year before the election and a fall the year after the election. That fits my definition of cynicism. The Government say, "Well, we'll bring some money forward just before you are about to vote for us, and then we'll claw it back the year after the election."
Indeed, it gets worse: the temporary bringing forward of the money is not consolidated into the rate of benefit that must be increased. In other words, the 1.5 per cent. does not go into the base level that is then indexed; it is taken away again and the indexation applies to the pre-increase rate. That is a curious notion of indexation. So this is purely about timing, and the idea that the electoral cycle might have some bearing on it is very hard to resist.
I want to raise a final issue, which is always the elephant in the room during such debates. I want to tell my hon. Friend the Member for Twickenham that I have found some money. In fact, I can tell him that I have found £50 billion-I do not want much of it-sitting in the national insurance fund. As hon. Members will know, along with the order, the Government Actuary's Department produces a report on the national insurance fund, and it tells us that the estimates for 2009-10 are payments of £75.7 billion and receipts of £78.1 billion. The recession may have done a bit to that, but the fund is more than £2 billion in surplus in 2009-10. Of course, that adds to the accumulated surplus in the fund, so that the balance at 31 March 2011, according to the Government Actuary, will be £50 billion-not a bad day's work, really.
The law only requires the balance in the fund to be one sixth of annual expenditure on benefits. The actual balance in the fund is about two thirds of annual estimated benefit payments. So pensioners' groups always ask us where the money has gone. When we find out where it has gone, it is a bit of surprise. A little of the money goes to the national health service, but the law says that most of it must go towards national insurance benefits, pensions and so on. But at the rates in the order, it cannot all be spent on national insurance benefits and pensions. They are not big enough to spend all the cash on, so the balance keeps rising year after year.
Where does the money go? My understanding is that the fund is a bit like a soft bank that lends money to the rest of public sector, so that the Government need not borrow it from elsewhere. Of course, when the Chancellor said in a recent Budget that he would increase national insurance contributions to help fill the hole in the Budget, he was doing so to spend that money not on national insurance benefits and pensions, but on others things, presumably. How can the fund be used as a label and a soft way to raise tax, when the money is not spent on national insurance benefits and pensions?
I wonder whether the Minister can tell us where the £50 billion is. Is it held by the national insurance fund? This is a serious question. Is that £50 billion, or is everything beyond the 16 per cent. that must be kept lent out? If so, to whom? Who is borrowing the national insurance fund? Where is it? Where is our cash? Who is borrowing it? What interest rate are they paying? Or is the national insurance fund being used as a sort of low-interest loan-a kind of Carol Vorderman approach to Government finances? I apologise to the Conservatives for using that example. Is this a way of getting in soft money at low interest rates to lend to the rest of the Government? Is that really what Beveridge had in mind? Did he think that the national insurance fund would essentially become a kind of easy credit option for the Government? We have come an awful long way since the start of the contributory principle.
It is deemed bad form to ask such questions. Clever people do not ask where the national insurance fund money is, because we all know that the fund is a work of fiction, but then why does the Government Actuary produce glossy reports telling us how much is in it? How much does it cost to produce the reports telling us that there is £50 billion in the fund, although when I ask Ministers about it they say, "But there isn't. Don't be silly, Steve. We know that the £50 billion isn't really there. There isn't really any money there at all, and you certainly couldn't spend it." Well, where is it? Why do we go through this charade every year? Either this is a charade or it is real money. If it is real money, where is it, and what is being done with it?
We would like to amend the regulations and take out the elements that freeze additional pensions, graduated pensions and state second pensions, but parliamentary procedure does not allow that. It would be nice to think that our votes in the House on Thursday on so-called modernisation would allow us, among other things, more scope to amend statutory instruments rather than simply voting for or against them, but we are not allowed that subtlety. We must vote for or against.
We have set out our reasoning on the Order Paper, in early-day motion 957. We will vote against the order tonight. If the Government were to say that that might
deprive people of their benefit increases, as has been gently indicated, I have had a word with my hon. Friend the Member for Somerton and Frome, the shadow Leader of the House for the Liberal Democrats, and he has nobly said that he will be prepared to make time in the business of the House for a debate on a revised set of regulations as early as tomorrow. We would be happy to give extra time to debate a revised version of the uprating regulations tomorrow, with the offending elements amended so that everyone gets their benefit increase and the £500 million that has been taken away from pensioners can be restored. There need be no loss or administrative delay to anyone, simply a more rational set of regulations.
Mr. Heath: We cannot conclude without referring to the feckless position of the so-called official Opposition, who apparently cannot oppose such motions because it is beyond their wit to realise that it is proper to oppose a motion that does the wrong thing in the hope that a motion will be tabled that will do the right thing. Is that not a rather disingenuous argument, when they find no difficulty in voting against the Budget? If they were to succeed, there would be no Budget, no uprating and no expenditure.
Steve Webb: My hon. Friend puts it admirably. I apologise for going too soft on the official Opposition, but he reminds me to have a go. I have long since given up expecting consistency from the Conservatives on such matters. In a few months they hope to be pulling the levers of power, so they do not want to rock the boat too much. We heard from the Conservatives that they would abstain, which is their default position on so many key issues- [Interruption]-indeed, for the second time tonight on key issues. When pensioners in our constituencies ask us, "Where were you on 1 March?", I will say, with my hon. Friends, "We were voting against the freezing of your pension." I suspect that the Conservatives will have to say, "We were at home in bed."
John Mason (Glasgow, East) (SNP): I thank the hon. Member for Northavon (Steve Webb) for leaving me time to make a few comments. I think highly of him and agree with a number of his points, including the suggestion that we should be able to amend such an order. The public would find it bizarre that we have to take it or leave it. I also agree that those at the bottom seem to be suffering the greatest pain from the recession. That is the basis for my remarks. I have some reservations, however, about the Liberal Democrat tactic of voting against the increase in order to get a bigger one.
The Minister made some interesting comments. For example, she claimed that the Government are protecting the most vulnerable. That sounds a reasonable statement, but when we look at what is happening in the wider economy and the amount of money that has gone into the banks and elsewhere, it sounds a little hollow. It is easy to speak about percentages. I noticed that the official Opposition and the Government are keen to talk about the percentages, be it 2, 2.5 or 1.5 per cent., but let us remember that in real terms in 1979 those at the top were earning about three times as much as those at the bottom. That has widened to four times as much.
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